Payment of tax and defaults by the assessee [Section 220] :
(i) Under section 220(1), any amount specified as payable in a notice of demand under section 156 shall be paid within thirty days of the service of notice at the place and to the person mentioned in the notice.
(ii) If the amount specified in the notice is not paid within the period, the assessee shall be liable to pay simple interest at 1% for every month or part of a month comprised in the period commencing from the day immediately following the end of the period mentioned in section 220(1) and ending with the day on which the amount is paid. This is provided for in section 220(2).
(iii) The first proviso to section 220(2) states that where as a result of an order under sections 154/155/250/254/260/262/264/245D(4), the amount on which interest payable under this section had been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded.
(iv) The liability of the assessee to pay interest is based on the theory of continuity of the proceedings and the doctrine of relation back.
(v) Accordingly, section 220(1A) provides that where any notice of demand has been served upon an assessee and any appeal or other proceeding, as the case may be, is filed or initiated in respect of the amount specified in the said notice of demand, then such demand shall be deemed to be valid till the disposal of appeal by the last appellate authority or disposal of proceedings, as the case may be, and any such notice of demand shall have effect as provided in section 3 of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964 [See Note below]
(vi) Further, the second proviso to section 220(2) provides that if as a result of order under the sections specified in the first proviso to section 220(2), the amount of interest payable was reduced, and thereafter, as a result of another order under any of the sections given in the first proviso or section 263, the interest payable was increased, the assessee would be liable to pay interest under section 220(2) from the day immediately following the end of the period mentioned in the first notice of demand referred to in section 220(1) till the date on which the amount is paid.
Note – Section 3 of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964
Continuation and validation of certain proceedings
(1) Where any notice of demand in respect of any Government dues is served upon an assessee by a Taxing Authority under any scheduled Act, and any appeal or other proceeding is filed or taken in respect of such Government dues, then, –
(a) where such Government dues are enhanced in such appeal or proceeding, the Taxing Authority shall serve upon the assessee another notice of demand only in respect of the amount by which such Government dues are enhanced and any proceeding in relation to such Government dues as are covered by the notice or notices of demand served upon him before the disposal of such appeal or proceeding may, without the service of any fresh notice of demand, be continued from the stage at which such proceedings stood immediately before such disposal;
(b) where such Government dues are reduced in such appeal or proceeding,-
(i) it shall not be necessary for the Taxing Authority to serve upon the assessee a fresh notice of demand;
(ii) the Taxing Authority shall give intimation of the fact of such reduction to the assessee. Further, where a certificate has been issued to the Tax Recovery Officer for the recovery of such amount, intimation of the fact of reduction shall also be given to him;
(iii) any proceedings initiated on the basis of the notice or notices of demand served upon the assessee before the disposal of such appeal or proceeding may be continued in relation to the amount so reduced from the stage at which such proceedings stood immediately before such disposal;
(c) no proceedings in relation to such Government dues (including the imposition of penalty or charging of interest) shall be invalid by reason only that no fresh notice of demand was served upon the assessee after the disposal of such appeal or proceeding or that such Government dues have been enhanced or reduced in such appeal or proceeding:
(2) No fresh notice of demand shall be necessary in any case where the amount of Government dues is not varied as a result of any order passed in any appeal or other proceeding under any scheduled Act.
(3) The provisions of this section shall have effect notwithstanding any judgment, decree or order of any court, tribunal or other authority.
Illustration
The Assessing Officer issued a notice of demand under section 156 to Mr.X on 1.10.2015 for payment of Rs 15 lakhs towards his income-tax liability for the A.Y.2014-15, requiring him to pay the said amount within 30 days.
(a) Is he required to issue fresh notice of demand and if so, for what amount, in the following two cases (each case has to be considered independently) –
(i) If the tax demand is reduced to Rs 12 lakhs by the Commissioner (Appeals) by issue of order under section 250;
(ii) If the tax demand is increased to Rs 20 lakhs by the Appellate Tribunal, by issue of an order under section 254.
(b) How would the interest liability under section 220(2) be calculated if the tax demand is reduced to Rs 12 lakhs by the Commissioner (Appeals) by issue of order under section 250 and subsequently increased to Rs 15 lakhs by the Appellate Tribunal by way of issue of order under section 254?
Answer
(a) (i) No fresh notice of demand is required to be served on Mr.X. The Assessing Officer is only required to give an intimation of the fact of reduction of demand to Rs 12 lakhs to Mr.X. The proceedings initiated on the basis of the original notice of demand may be continued in relation to the reduced amount of ` 12 lakhs from the stage at which such proceedings stood immediately before disposal of appeal.
(ii) A fresh notice of demand has to be given only in respect of Rs 5 lakhs, being the amount of enhancement. Any proceedings in relation to Rs 15 lakhs covered by the original notice of demand served upon Mr.X may be continued from the stage at which such proceedings stood immediately before disposal of appeal.
(b) The interest under section 220(2) has to be paid on Rs 15 lakhs @1% per month or part of the month comprised in the period commencing from 1.11.2015 and ending with the date on which the amount is paid, assuming that Mr. X has not paid any interest so far. Section 220(2A) empowers the Principal Chief Commissioner or Chief Commissioner of Principal Commissioner or Commissioner to reduce or waive any interest payable under section 220(2) if he is satisfied that:
(i) payment of such amount has caused or would cause genuine hardship to the assessee;
(ii) default in the payment of the amount on which interest was made payable under the said sub-section was due to circumstances beyond the control of the assessee; and
(iii) the assessee has co-operated in any enquiry relating to the assessment or any proceeding for the recovery of any amount due from him.
Since the intimation generated after processing the TDS statement under section 200A(1) would be deemed as a notice of demand under section 156, consequently, interest under section 220 would be attracted for failure to pay the tax specified in the intimation. However, interest under section 201(1A) is leviable for non-payment of tax specified in the intimation. Therefore, it has been provided that in cases where interest is charged for any period under section 201(1A) on the tax specified in the intimation under section 200A, then, interest under section 220(2) would not be levied on the same amount for the same period.
Likewise, since the intimation generated after processing of TCS statement shall be deemed as a notice of demand under section 156, failure to pay the tax specified in the intimation shall attract levy of interest as per the provisions of section 220(2). Section 206C(7) also provides for levy of interest for non-payment of tax specified in the intimation to be issued. In order to remove the possibility of charging interest on the same amount for the same period of default both under section 206C(7) and section 220(2), sub-section (2C) has been inserted in section 220 to specifically provide that where interest is charged for any period under section 206C(7) on the amount of tax specified in the intimation issued under 206CB(1), no interest shall be charged under section 220(2) on the same amount for the same period.